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Editor’s Column: Cashing in on the cash advance

Harvested Grain Field

On August 23, when you heard the Alberta Wheat Commission is going to start offering cash advances through its new program, FarmCash, you probably looked up from the swath you were combining, thought, “that’s nice. More cash advances.” then turned to check your yield monitor. When it rains, take time to consider this news. It might not be as nice as you think.

The cash advance program is a federal program, formally called the Advance Payments Program (APP). This is the program that loans you $100,000, interest free, secured by the grain in your bin or the cows in your pasture. If you have enough inventory, you can borrow another $300,000 at a reasonable interest rate.

This program is not run like a typical federal ag program. When you have a question about your outstanding balance, you don’t phone a federal bureaucrat. Instead, you call someone who works for a farm organization. The APP is administered separately by more than 40 farm organizations. Each of these organizations borrows money from banks and lends it to farmers. The farm organizations pay their own expenses and potentially earn a profit by collecting money from the federal government (the interest on the first $100,000 and a guarantee on that amount), and from program users. Farmer borrowers are charged admin fees (usually $50), default fees, and interest rates just above the rate the farm organizations pay the banks.

Federal legislation doesn’t give these administrators a lot of leeway; they’re all offering the same program. They have some room to set their own admin fees, interest rates on the $300,000 and default fees and charges. But even with so many administrators, each farmer can only borrow a maximum of $400,000*, even if you go to more than one farm organization (unless you’re interested in committing fraud.)

You might be thinking that this is a lot of administration for one simple program.

Scott Pellow, director of Agriculture and Agri-Food Canada’s Financial Guarantee Programs Division (which includes the APP), says having lots of organizations involved gives farmers more choice. “We view that as a good thing,” he says.

Originally, farmers using the Advance Payments Program had to go to a specific organization to borrow money, depending on what they wanted to use as collateral. If you had honey, you went to a honey producers organization. If you had a bin full of canola, you went to the Canola Growers. But these days, most administrators run their program as a one-stop shop. For example, starting September 1, Alberta farmers can use wheat, canola or lentils as collateral for an advance from the AWC. This largely began with the end of the Canadian Wheat Board (CWB), when farmers’ advances on wheat were transferred from the CWB to the Canadian Canola Growers Association (CCGA).

The CCGA has been administering this program for 35 years, and, especially since receiving the CWB clients, it is by far the largest administrator. It has built up expertise, and the sheer size of their loan portfolio gives it power to negotiate interest rates with banks when staff are borrowing money to lend to farmers. The CCGA already had a lot of competitors; now it will have one more. “At some point, it becomes a duplication of services,” says CCGA general manager, Rick White.

Tom Steve, the AWC’s general manager, is confident about AWC’s move to offer the APP. “We think there’s room for another option,” he says. He believes farmers prefer more competition. He says the AWC has administrative capacity in the office, and it can use its strong relationship with members to get more farmers to use the program.

If more farmers are using the program after September 1, it will be hard to know for sure if this is a result of the AWC’s new venture —with rising interest rates, more farmers might be looking for interest-free money no matter where they have to email their signature. And, unless significantly more “new” farmers use the program, almost every customer gained by the AWC will be one less client for the CCGA.

Every farm organization administering this program will need a program manager, an accountant, an internet connection and a coffee machine. Having one more administrator can only increase overall costs. And in the end — as usual — there’s only one group paying the bills. Farmers will pay for every fax machine, likely through slightly higher cash advance interest rates, or higher default fees.

I’ve no doubt there are some farmers complaining about the CCGA’s service and looking for another option. (There are also several farmers with long-standing vendettas against the local co-op grocery store and their cell phone provider.) But Alberta wheat growers fed up with the CCGA already had three other options: the Western Cash Advance Program Inc. (offered by the Feeder Association of Alberta), the Alberta Sugar Beet Growers, and the Manitoba Corn Growers Association. Surely four choices are enough for even the most cantankerous farmer.

The over-administration of the federal Advance Payments Program is unusual and, I can only imagine, unnecessarily expensive. But the immediate concern for Alberta farmers is the AWC’s decision to climb into this sandbox.

The AWC’s mandate is “to increase the long-term profitability of wheat and Alberta wheat producers through innovative research, agronomic support and extension, market development, communications and policy development.” Getting into an interest rate war with the CCGA doesn’t accomplish any of these goals. In fact, it takes the AWC’s board and staff’s focus away from projects that could be helpful for farmers, to oversee a program that farmers already had.

The ink is still drying on the office leases of many of our new levy-funded farm groups. Several relatively new commodity associations are still fumbling to find their space in the agricultural landscape. There are many underserved areas in research, extension and market development where these associations have a fresh opportunity to really make a difference to our Western Canadian farm economy. Let’s encourage our board chairs, directors and staff to help find ways to increase farmers’ profits, not squander their time and resources competing with each other in spaces that are already filled.


*An earlier version of this story implied that the total cash available is $500,000. Farmers may only borrow a total of $400,000 through the program.

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